The down economy has caused a lot of business leaders to reconsider their career trajectories.
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Faced with a highly competitive job market, many entrepreneurial business leaders are electing to buy a business rather than seek traditional employment at another firm. But is buying a business to buy a salary really a good idea?
The answer is a firm, "maybe". The idea of buying a business has a lot of benefits, not the least of which is the potential to provide the owner with a steady source of income. If the business is already established and profitable, new owners can be reasonably assured that they will be compensated for their efforts.
But at the end of the day, business ownership is a risky venture. Before you walk away from your desk job and throw down your retirement savings on a new business, here are some of the pros and cons of buying a business to buy a salary.
- The biggest advantage of buying a business is that it theoretically gives you the ability to exit today's highly competitive job market. As long as the business is profitable, you can assign yourself a role and collect a salary.
- Since you're the boss, you no longer need a supervisor's sign-off for a much-deserved raise. Based on your circumstances, you can increase (or decrease) your salary level as a tax planning strategy.
- Small businesses also provide non-salary income for their owners. Owners can take dividends from the company as a way to augment their income. But even more importantly, the hard work you invest in your business can eventually lead to a much bigger payday when it's time to sell the company.
- Right away, you will discover that small business ownership involves a lot more than counting your profits. Small businesses are a lot of hard work – be prepared to work harder than you did when you collected a salary from someone else.
- Buying a business almost always involves a significant upfront investment. Before you can earn a salary from a business, you'll need to shell out significant capital from your savings or retirement account.
- Traditional employment offers a certain amount of income security. There are no guarantees that your business will ever be profitable or capable of providing an income that is comparable to the one you received from an employer.